Speculation is always rife in the days before the budget and while there are usually signs of policies being teased for a reaction (IHT cuts anyone) it does usually seem that what is leaked to the press beforehand is largely what shows up in the announcements.
This budget offers no shock factor of either the ‘mini-budget fiscal event’ or the LTA bombshell that followed in Spring 2023. Instead, we have largely what has filtered through in the media which in our industry, is not a whole lot of change.
The personal (and business) tax was the big focus and took up most of what was announced. Starting off we have:
- A reduction in the rate of NI paid by employees. This has reduced from 12% of earnings below the higher rate band to 10%.
- Scheduled to take effect from 6th January, this should increase monthly take-home pay and increase disposable income by up to £754 a year (£62.83 per month). The rate applied for higher rate incomes remains at 2%.
- National Insurance class 2 contributions will be abolished (from April 2024).
- This is the weekly rate that a self-employed individual pays alongside class 4 contributions. The current rate of £3.45 per week means there is a saving of £179.40 a year.
- Self-employed individuals pay class 2 and class 4 contributions but only receive credits towards the State Pension for class 2 contributions. The budget confirmed that entitlement to the State Pension would continue to be built up for those who no longer need to pay class 2 contributions.
- Class 4 contributions reduce from 9% to 8% (again from April 2024)
- Another NI reduction on the second element paid by self-employed people. The rate will be 8% on profits between £12,570 to £50,270 rather than 9%, offering a saving of up £377.
There were some comments around access to certain investment classes within the overall pension framework, but the main notable point is the consultation on the idea of a ‘pension pot for life’.
To presumably prevent the issue of multiple orphaned pots hanging around a member through working life, a new option for employees is the ability to have their employer pay into a pension of their choosing, which they can take across multiple jobs.
Instead of a company directing contributions to a single scheme, that all employees are a member of, it will presumably work similarly to how employees do not all need the same bank account provider to receive their wages. It is not clear if this ‘pension pot for life’ will end up based on either:
- Any existing qualifying workplace pension.
- A predefined type of pension that can be used instead of the employer’s scheme.
- Or a freely chosen plan by the member.
Given what we know about the regulator’s work around approved workplace pensions, it seems likely that any pension pot for life will have to be qualifying by meeting a set of conditions, if it is indeed open to non-workplace pensions.
It’s early to be thinking ahead on this but individuals being able to take their pot with them from one job to another is naturally going to reduce the amount of paid-up pots they ultimately have. Until a member retires (or unless they have specialist investment needs) it is likely to be suitable for most to take their ‘pot for life’ across jobs and only review this properly in the run-up to retirement and/or at the point of retirement.
Clients taking a career break, being made redundant and taking their time to find a new role are going to have a pot that can ‘re-activate’ when needed, making moving it much less a natural conclusion compared to the situation now. Having a pot for life that meets certain standards will also involve the client being able to avoid becoming a member of default schemes such as NEST and Peoples Pension.
Any pension that meets the ‘pot for life’ criteria is likely to be much harder to justify in terms of closing. The detail of what pension can be a ‘pot for life’ is going to be crucial and will almost certainly impact the pension advice market.
As expected, the State Pension will rise in April with the triple lock being the mechanism used. The relevant figure is 8.50% (wage earnings growth) and this brings the full State Pension to:
- £221.20 per week
- £11,502.40 per annum
This is getting closer and closer to the Personal Allowance (unchanged at £12,570) meaning it is becoming more worthwhile to start looking at marriage allowances for those with split State Pension ages and/or additional incomes to the State Pension.
The increase in secure income (£23,000 tax-free now for a household) may also unlock certain retirement plans so revisiting cash flow plans for those whose future plans were a bit more marginal could be worthwhile.
Also announced were changes to how people out of work receive both benefits and encouragement to return to work. Clients signed off as unable to work due to disability or sickness will face reviews to encourage them to come out of the benefits system. Part of this review will look at whether work-from-home roles are suitable compared to the more traditional work capability assessments.
There will be more pressure on those deemed fit to work or those out of work long-term to find work or use mandatory work placements. This pressure will come in the form of ultimately stopping benefits from being paid after six months of not engaging with the process.
Anyone receiving a Personal Independence Payment (PIP) will, due to the non-means tested nature of it, be able to maintain this regardless of their ability to work.
To end on a lighter note, a freeze on alcohol duty until 1st August 2024 means no fresh increases on beer, cider, wine or spirits. So cheers to that, at least!
Technical Specialist, The Verve Group